Competition is the cure for what ails drug plan

December 07, 2006|By Dick Durbin

Friday is the third anniversary of President Bush signing into law the Medicare prescription drug bill, and there is a new battle cry among the ranks of conservative activists: The program is working far better than expected and no improvements are needed.

Democrats who want to inject old-fashioned marketplace competition into the prescription drug program are lambasted as "granny gougers." It is a cynical attempt to distort the truth and gloss over the very real problems faced by seniors enrolled in Medicare Part D: coverage gaps, dropped coverage of specific drugs, increasing premiums and complicated private insurance plans.

Are some seniors saving money under the new drug program? Yes. But far too many are not. And worse, some of those saving money today are going to hit a huge financial bump in the road when their plans fall into the "doughnut hole" and they are forced to pay full price for their medications.

Fans of the Bush administration's Medicare prescription drug program don't like to talk about the doughnut hole, but many seniors are worried. When their annual drug costs are between $2,250 and $5,100, they will be forced to cover 100 percent of their prescriptions.

A study released by Families USA last month found that this $2,850 gap will grow to $3,051 next year and increase to $5,066 by 2013. Of the 2,182 drug plans nationally, only 55 offer meaningful doughnut-hole coverage. Next year, the number of private plans increases to 2,844, but the total number of plans offering doughnut-hole coverage decreases to 38.

Seniors in Illinois who are lucky enough to have access to a plan that offers doughnut-hole coverage will see their monthly premiums increase by 77 percent next year. When defenders of the status quo tout low premiums, seniors should understand that those low costs only hold until you hit the doughnut hole.

So what's the answer? In short: bargaining power.

Remember what the federal government did five years ago when our nation was living under a threat of anthrax attacks. The Bush administration, under the direction of former Health and Human Services Secretary Tommy Thompson, used its bargaining power to negotiate directly with Bayer AG to drive down the price of Cipro from $4 a pill to 95 cents a pill.

There is power in numbers. According to a recent congressional report, allowing Medicare to negotiate directly with drug companies could reduce prices by 25 percent or more. This means 8.7 million Medicare beneficiaries nationwide who fully pay their own premiums and co-payments could expect an average savings of almost $500 annually if drug prices were negotiated.

But instead of offering a drug benefit through Medicare, an efficient program trusted by seniors, Republicans forbade Medicare from negotiating with pharmaceutical companies and handed over the power to set prices to private companies offering hundreds of plans, along with tens of billions of dollars in giveaways.

Democrats want to reverse the provision in the Medicare prescription drug law that prohibits the secretary of health and human services from negotiating with drug companies for lower prices. This, along with giving seniors an option to enroll in a nationwide plan administered by Medicare, could mean real savings to millions of beneficiaries and an opportunity to narrow the coverage gap.

A study released earlier this year by the Institute for America's Future concluded that the combined savings from having Medicare negotiate prices directly with the pharmaceutical industry and having Medicare directly offer a prescription drug plan rather than rely on private insurers would be more than $600 billion over the next seven years. Giving Medicare the right to negotiate on behalf of seniors is old-fashioned free market economics: If one buys in bulk, the price will come down.

Until we change the law, the Medicare drug plan will continue to be a financial boon to pharmaceutical companies and a mixed bag for seniors.